10-Q 1 w99575e10vq.txt FORM 10-Q AMERIGAS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-13692 Commission file number 33-92734-01 Commission file number 333-72986-02 Commission file number 333-72986-01 AMERIGAS PARTNERS, L.P. AMERIGAS FINANCE CORP. AMERIGAS EAGLE FINANCE CORP. AP EAGLE FINANCE CORP. (Exact name of registrants as specified in their charters) Delaware 23-2787918 Delaware 23-2800532 Delaware 23-3074434 Delaware 23-3077318 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 460 North Gulph Road, King of Prussia, PA 19406 (Address of principal executive offices)(Zip Code) (610) 337-7000 (Registrants' telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] At July 31, 2004, the registrants had units and shares of common stock outstanding as follows: AmeriGas Partners, L.P. - 54,473,272 Common Units AmeriGas Finance Corp. - 100 shares AmeriGas Eagle Finance Corp. - 100 shares AP Eagle Finance Corp. - 100 shares AMERIGAS PARTNERS, L.P. TABLE OF CONTENTS

-i- AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Thousands of dollars)

See accompanying notes to condensed consolidated financial statements. - 1 - AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (Thousands of dollars, except per unit)

See accompanying notes to condensed consolidated financial statements. - 2 - AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Thousands of dollars)

See accompanying notes to condensed consolidated financial statements. - 3 - AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (unaudited) (Thousands, except unit data)

See accompanying notes to condensed consolidated financial statements. - 4 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Thousands of dollars, except per unit) 1. BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of AmeriGas Partners, L.P. ("AmeriGas Partners") and its principal operating subsidiaries AmeriGas Propane, L.P. ("AmeriGas OLP") and AmeriGas OLP's subsidiary, AmeriGas Eagle Propane, L.P. ("Eagle OLP"). AmeriGas Partners, AmeriGas OLP and Eagle OLP are Delaware limited partnerships. AmeriGas OLP and Eagle OLP are collectively referred to herein as "the Operating Partnerships," and AmeriGas Partners, the Operating Partnerships and all of their subsidiaries are collectively referred to herein as "the Partnership" or "we." We eliminate all significant intercompany accounts and transactions when we consolidate. We account for AmeriGas Propane, Inc.'s (the "General Partner's") 1.01% interest in AmeriGas OLP and an unrelated third party's approximate 0.1% limited partner interest in Eagle OLP as minority interests in the condensed consolidated financial statements. The Partnership's 50% ownership interest in Atlantic Energy, Inc. ("Atlantic Energy"), the owner of a propane storage terminal located in Chesapeake, Virginia, is accounted for by the equity method. The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). They include all adjustments which we consider necessary for a fair statement of the results for the interim periods presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. The September 30, 2003 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, 2003 ("2003 Annual Report"). Weather significantly impacts demand for propane and profitability because many customers use propane for heating purposes. Due to the seasonal nature of the Partnership's propane business, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. NET INCOME PER UNIT. Net income per unit is computed by dividing net income, after deducting the General Partner's interest in AmeriGas Partners, by the weighted average number of limited partner units outstanding. Effective April 2004, the Partnership adopted Emerging Issues Task Force Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128" ("EITF 03-6"), which results in the calculation of net income per limited partner unit for each period according to distributions declared and participation rights in undistributed earnings, as if all of the earnings for the period had been distributed. In periods with undistributed earnings above certain levels, the calculation according to the two-class method results in an increased allocation of undistributed earnings to the General Partner and a dilution of the earnings to the limited partners. Due to the seasonality of the - 5 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Thousands of dollars, except per unit) propane business, the dilutive effect of EITF 03-6 on net income per limited partner unit will typically impact the first three fiscal quarters. EITF 03-6 is not expected to impact net income per limited partner unit for the fiscal year. The dilutive effect of EITF 03-6 on net income per limited partner unit was $(0.10) and $(0.03) for the nine months ended June 30, 2004 and 2003, respectively. Potentially dilutive Common Units included in the diluted limited partner units outstanding computation reflect the effects of restricted Common Unit awards granted under AmeriGas Propane, Inc. incentive compensation plans. COMPREHENSIVE (LOSS) INCOME. The following table presents the components of comprehensive (loss) income for the three and nine months ended June 30, 2004 and 2003:

Other comprehensive income (loss) is principally the result of changes in the fair value of propane commodity derivative instruments and interest rate protection agreements, net of reclassifications of net gains and losses to net income. UNIT-BASED COMPENSATION. As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), we apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), in recording compensation expense for grants of equity instruments to employees. - 6 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Thousands of dollars, except per unit) We use the intrinsic value method prescribed by APB 25 for our unit-based employee compensation plans. We recorded unit-based compensation expense of $72 and $556 during the three and nine months ended June 30, 2004, respectively, and $618 and $1,641 during the three and nine months ended June 30, 2003, respectively. If we had determined unit-based compensation expense under the fair value method prescribed by SFAS 123, net (loss) income and basic and diluted (loss) income per limited partner unit for the three and nine months ended June 30, 2004 and 2003 would have been as follows:

USE OF ESTIMATES. We make estimates and assumptions when preparing financial statements in conformity with accounting principles generally accepted in the United States of America. These estimates and assumptions affect the reported amounts of assets and liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. 2. ACQUISITIONS On October 1, 2003, AmeriGas OLP acquired substantially all of the retail propane distribution assets and business of Horizon Propane LLC ("Horizon Propane") for total cash consideration of $31,044. In December 2003, AmeriGas OLP paid Horizon Propane a working capital adjustment of $111 in accordance with the Asset Purchase Agreement. During its fiscal year ended June 30, 2003, Horizon Propane sold over 30 million gallons of propane from ninety locations in twelve states. In addition, several smaller acquisitions of retail propane businesses were completed during the nine months ended June 30, 2004. The pro forma effect of all of these transactions is not material. - 7 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Thousands of dollars, except per unit) 3. COMMON UNIT ACTIVITY On May 26, 2004, AmeriGas Partners sold 2,000,000 Common Units in an underwritten public offering at a public offering price of $25.61 per unit. On June 10, 2004, the underwriters partially exercised their overallotment option in the amount of 100,000 Common Units. The net proceeds of the public offering totaling $51,197 and the associated capital contributions from the General Partner totaling $1,045 were contributed to AmeriGas OLP and used to reduce indebtedness under its bank credit agreement and for general partnership purposes. On June 17, 2003, AmeriGas Partners sold 2,900,000 Common Units in an underwritten public offering at a public offering price of $27.12 per unit. The net proceeds of the public offering totaling $75,005 and the associated capital contributions from the General Partner totaling $1,531 were contributed to AmeriGas OLP and used to reduce indebtedness under its bank credit agreement and for general partnership purposes. The underwriters' overallotment option expired unexercised. 4. INTANGIBLE ASSETS The Partnership's intangible assets comprise the following:

The increases in intangible assets during the nine months ended June 30, 2004 resulted from Partnership business acquisitions. Amortization expense of intangible assets was $1,067 and $3,186 for the three and nine months ended June 30, 2004, respectively, and $745 and $2,297 for the three and nine months ended June 30, 2003, respectively. Our expected aggregate amortization expense of intangible assets for the next five fiscal years is as follows: Fiscal 2004 - $4,196; Fiscal 2005 - $3,838; Fiscal 2006 - $3,450; Fiscal 2007 - $2,816; Fiscal 2008 - $2,586. - 8 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Thousands of dollars, except per unit) 5. RELATED PARTY TRANSACTIONS Pursuant to the Partnership Agreement and a Management Services Agreement among AmeriGas Eagle Holdings, Inc., the general partner of Eagle OLP, and the General Partner, the General Partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of the Partnership. These costs, which totaled $71,509 and $234,946 during the three and nine months ended June 30, 2004, respectively, and $68,553 and $215,750 during the three and nine months ended June 30, 2003, respectively, include employee compensation and benefit expenses of employees of the General Partner and general and administrative expenses. UGI Corporation ("UGI") provides certain financial and administrative services to the General Partner. UGI bills the General Partner for these direct and indirect corporate expenses and the General Partner is reimbursed by the Partnership for these expenses. Such corporate expenses totaled $2,154 and $7,686 during the three and nine months ended June 30, 2004, respectively, and $2,455 and $6,699 during the three and nine months ended June 30, 2003, respectively. In addition, UGI and certain of its subsidiaries provide office space and automobile liability insurance to the Partnership. These expenses totaled $679 and $1,919 during the three and nine months ended June 30, 2004, respectively, and $441 and $1,315 during the three and nine months ended June 30, 2003, respectively. The Partnership purchases propane on behalf of Atlantic Energy. Atlantic Energy reimburses AmeriGas OLP for its purchases plus interest as Atlantic Energy sells such propane to third parties or to AmeriGas OLP itself. The total dollar value of propane purchased on behalf of Atlantic Energy was $3,875 and $25,108 during the three and nine months ended June 30, 2004, respectively, and $941 and $11,764 during the three and nine months ended June 30, 2003, respectively. Purchases of propane by AmeriGas OLP from Atlantic Energy during the three and nine months ended June 30, 2004 totaled $3,091 and $25,125, respectively, and during the three and nine months ended June 30, 2003 totaled $2,240 and $20,898, respectively. The General Partner also provides other services to Atlantic Energy including accounting, insurance and other administrative services and is reimbursed for the related costs. Such costs were not material during the three and nine months ended June 30, 2004 or 2003. On occasion, AmeriGas OLP enters into product cost hedging contracts on behalf of Atlantic Energy. When these contracts are settled, AmeriGas OLP is reimbursed the cost of any losses, or distributes the proceeds of any gains, to Atlantic Energy. Amounts due from Atlantic Energy at June 30, 2004, September 30, 2003 and June 30, 2003 totaled $1,421, $2,042 and $772, respectively. Amounts due from Atlantic Energy are included in accounts receivable - related parties in the Condensed Consolidated Balance Sheets. - 9 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Thousands of dollars, except per unit) 6. LONG-TERM DEBT In April 2004, AmeriGas OLP repaid $53,750 of maturing First Mortgage Notes. In conjunction with this repayment, in April 2004, AmeriGas Partners issued $28,000 face amount of 8.875% Senior Notes due 2011 at an effective rate of 7.18%, and contributed the net proceeds of $30,135 to AmeriGas OLP. In April 2003, AmeriGas OLP repaid $53,750 of maturing First Mortgage Notes. In conjunction with this repayment, AmeriGas Partners issued $32,000 face amount of 8.875% Senior Notes due 2011 at an effective interest rate of 7.72% and contributed the net proceeds of $33,680, including debt premium, to AmeriGas OLP. On December 3, 2002, AmeriGas Partners issued $88,000 face amount of 8.875% Senior Notes due 2011 at an effective interest rate of 8.30%. The proceeds, net of underwriters' fees, of $89,100 were used on January 6, 2003 to redeem prior to maturity AmeriGas Partners' $85,000 face amount of 10.125% Senior Notes due 2007 at a redemption price of 102.25%, plus accrued interest. The Partnership recognized a loss of $3,023 in the quarter ended March 31, 2003 related to the redemption premium and other associated costs and expenses. 7. COMMITMENTS AND CONTINGENCIES The Partnership has succeeded to certain lease guarantee obligations of Petrolane relating to Petrolane's divestiture of non-propane operations before its 1989 acquisition by QFB Partners. Future lease payments under these leases total approximately $13,000 at June 30, 2004. These leases expire through 2010 and some of them are currently in default. The Partnership has succeeded to the indemnity agreement of Petrolane by which Texas Eastern Corporation ("Texas Eastern"), a prior owner of Petrolane, agreed to indemnify Petrolane against any liabilities arising out of the conduct of businesses that do not relate to, and are not a part of, the propane business, including lease guarantees. In December 1999, Texas Eastern filed for dissolution under the Delaware General Corporation Law. PanEnergy Corporation ("PanEnergy"), Texas Eastern's sole stockholder, subsequently assumed all of Texas Eastern's liabilities as of December 20, 2002, to the extent of the value of Texas Eastern's assets transferred to PanEnergy as of that date (which was estimated to exceed $94,000), and to the extent that such liabilities arise within ten years from Texas Eastern's date of dissolution. Notwithstanding the dissolution proceeding, and based on Texas Eastern previously having satisfied directly defaulted lease obligations without the Partnership's having to honor its guarantee, we believe that the probability that the Partnership will be required to directly satisfy the lease obligations subject to the indemnification agreement is remote. On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the propane distribution businesses of Columbia Energy Group (the "2001 Acquisition") pursuant to the terms of a purchase agreement (the "2001 Acquisition Agreement") by and among - 10 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Thousands of dollars, except per unit) Columbia Energy Group ("CEG"), Columbia Propane Corporation ("Columbia Propane"), Columbia Propane, L.P. ("CPLP"), CP Holdings, Inc. ("CPH," and together with Columbia Propane and CPLP, the "Company Parties"), AmeriGas Partners, AmeriGas OLP and the General Partner (together with AmeriGas Partners and AmeriGas OLP, the "Buyer Parties"). As a result of the 2001 Acquisition, AmeriGas OLP acquired all of the stock of Columbia Propane and CPH and substantially all of the partnership interests of CPLP. Under the terms of an earlier acquisition agreement (the "1999 Acquisition Agreement"), the Company Parties agreed to indemnify the former general partners of National Propane Partners, L.P. (a predecessor company of the Columbia Propane businesses) and an affiliate (collectively, "National General Partners") against certain income tax and other losses that they may sustain as a result of the 1999 acquisition by CPLP of National Propane Partners, L.P. (the "1999 Acquisition") or the operation of the business after the 1999 Acquisition ("National Claims"). At June 30, 2004, the potential amount payable under this indemnity by the Company Parties was approximately $61,000. These indemnity obligations will expire on the date that CPH acquires the remaining outstanding partnership interest of CPLP, which is expected to occur on or after July 19, 2009. Under the terms of the 2001 Acquisition Agreement, CEG agreed to indemnify the Buyer Parties and the Company Parties against any losses that they sustain under the 1999 Acquisition Agreement and related agreements ("Losses"), including National Claims, to the extent such claims are based on acts or omissions of CEG or the Company Parties prior to the 2001 Acquisition. The Buyer Parties agreed to indemnify CEG against Losses, including National Claims, to the extent such claims are based on acts or omissions of the Buyer Parties or the Company Parties after the 2001 Acquisition. CEG and the Buyer Parties have agreed to apportion certain losses resulting from National Claims to the extent such losses result from the 2001 Acquisition itself. We also have other contingent liabilities, pending claims and legal action arising in the normal course of our business. We cannot predict with certainty the final results of these matters. However, it is reasonably possible that some of them could be resolved unfavorably to us. Although management currently believes that damages or settlements, if any, recovered by the plaintiffs in such claims or actions will not have a material adverse effect on our financial position, damages or settlements could be material to our operating results or cash flows in future periods depending on the nature and timing of future developments with respect to these matters and the amount of future operating results and cash flows. 8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the Financial Accounting Standards Board ("FASB") revised Financial Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which was originally issued in January 2003 and clarifies Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was effective immediately for - 11 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Thousands of dollars, except per unit) variable interest entities created or obtained after January 31, 2003. For variable interest entities created or acquired before February 1, 2003, FIN 46 was effective beginning with our interim period ended March 31, 2004. If certain conditions are met, FIN 46 requires the primary beneficiary to consolidate certain variable interest entities. The Partnership has not created or obtained any variable interest entities prior to, or after January 31, 2003. Therefore, the adoption of FIN 46 did not affect the Partnership's financial position or results of operations. - 12 - AMERIGAS FINANCE CORP. (a wholly owned subsidiary of AmeriGas Partners, L.P.) BALANCE SHEETS (unaudited)

See accompanying note to balance sheets. - 13 - AMERIGAS FINANCE CORP. (A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.) NOTE TO BALANCE SHEETS (unaudited) AmeriGas Finance Corp. ("AmeriGas Finance"), a Delaware corporation, was formed on March 13, 1995 and is a wholly owned subsidiary of AmeriGas Partners, L.P. ("AmeriGas Partners"). As of November 21, 2003, AmeriGas Partners and AmeriGas Finance have an effective unallocated shelf registration statement with the Securities and Exchange Commission under the Securities Act of 1933 under which AmeriGas Partners may issue up to $446,219,000 of debt or equity securities. AmeriGas Finance will be the co-obligor of the debt securities, if any, issued pursuant to the registration statement. AmeriGas Partners owns all 100 shares of AmeriGas Finance common stock outstanding. - 14 - AMERIGAS EAGLE FINANCE CORP. (a wholly owned subsidiary of AmeriGas Partners, L.P.) BALANCE SHEETS (unaudited)

See accompanying note to balance sheets. - 15 - AMERIGAS EAGLE FINANCE CORP. (A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.) NOTE TO BALANCE SHEETS (unaudited) AmeriGas Eagle Finance Corp. ("Eagle Finance"), a Delaware corporation, was formed on February 22, 2001 and is a wholly owned subsidiary of AmeriGas Partners, L.P. ("AmeriGas Partners"). On April 4, 2001, AmeriGas Partners and Eagle Finance jointly and severally issued $60,000,000 face amount of 10% Senior Notes due April 2006. AmeriGas Partners owns all 100 shares of Eagle Finance common stock outstanding. - 16 - AMERIGAS FINANCE CORP. (a wholly owned subsidiary of AmeriGas Partners, L.P.) BALANCE SHEETS (unaudited)

See accompanying note to balance sheets. - 17 - AP EAGLE FINANCE CORP. (A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.) NOTE TO BALANCE SHEETS (unaudited) AP Eagle Finance Corp. ("AP Eagle Finance"), a Delaware corporation, was formed on April 12, 2001 and is a wholly owned subsidiary of AmeriGas Partners, L.P. ("AmeriGas Partners"). On August 21, 2001, AmeriGas Partners and AP Eagle Finance jointly and severally issued $200,000,000 face amount of 8.875% Series A Senior Notes due May 2011. On December 20, 2001, AmeriGas Partners and AP Eagle Finance exchanged $199,985,000 face amount of 8.875% Series A Senior Notes due May 2011 for a like amount of AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011 pursuant to a registered exchange offer. On May 3, 2002, AmeriGas Partners and AP Eagle Finance jointly and severally issued $40,000,000 face amount of 8.875% Series B Senior Notes due May 2011. On December 3, 2002, AmeriGas Partners and AP Eagle Finance jointly and severally issued $88,000,000 face amount of 8.875% Senior Notes due May 2011. On April 4, 2003, AmeriGas Partners and AP Eagle Finance exchanged (1) $15,000 face amount of 8.875% Series A Senior Notes due May 2011 and (2) $88,000,000 face amount of 8.875% Senior Notes due May 2011 for like amounts of AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011 pursuant to a registered exchange offer. In April 2003, AmeriGas Partners and AP Eagle Finance jointly and severally issued $32,000,000 face amount of 8.875% Series B Senior Notes due May 2011. In April 2004, AmeriGas Partners and AP Eagle Finance jointly and severally issued $28,000,000 face amount of 8.875% Series B Senior Notes due May 2011. AmeriGas Partners owns all 100 shares of AP Eagle Finance common stock outstanding. - 18 - AMERIGAS PARTNERS, L.P. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements use forward-looking words such as "believe," "plan," "anticipate," "continue," "estimate," "expect," "may," "will," or other similar words. These statements discuss plans, strategies, events or developments that we expect or anticipate will or may occur in the future. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you that actual results almost always vary from assumed facts or bases, and the differences between actual results and assumed facts or bases can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the following important factors which could affect our future results and could cause those results to differ materially from those expressed in our forward-looking statements: (1) adverse weather conditions resulting in reduced demand; (2) price volatility and availability of propane, and the capacity to transport it to our market areas; (3) changes in laws and regulations, including safety, tax and accounting matters; (4) large supplier, counterparty or customer defaults; (5) competitive pressures from the same and alternative energy sources; (6) failure to acquire new customers thereby reducing or limiting any increase in revenues; (7) liability for environmental claims; (8) customer conservation measures and improvements in energy efficiency and technology resulting in reduced demand; (9) adverse labor relations; (10) inability to make business acquisitions on economically acceptable terms resulting in failure to acquire new customers thereby limiting any increase in revenues; (11) liability for personal injury and property damage arising from explosions and other catastrophic events, including acts of terrorism, resulting from operating hazards and risks incidental to transporting, storing and distributing propane, butane and ammonia, including liability in excess of insurance coverage; (12) political, regulatory and economic conditions in the United States and in foreign countries; and (13) interest rate fluctuations and other capital market conditions. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. We undertake no obligation to update publicly any forward-looking statement whether as a result of new information or future events except as required by federal securities laws. - 19 - AMERIGAS PARTNERS, L.P. ANALYSIS OF RESULTS OF OPERATIONS The following analyses compare the Partnership's results of operations for (1) the three months ended June 30, 2004 ("2004 three-month period") with the three months ended June 30, 2003 ("2003 three-month period") and (2) the nine months ended June 30, 2004 ("2004 nine-month period") with the nine months ended June 30, 2003 ("2003 nine-month period"). AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. have nominal assets and do not conduct any operations. Their sole purpose is to serve as co-obligors for debt securities issued by AmeriGas Partners, L.P. Accordingly, discussions of the results of operations and financial condition and liquidity of these entities are not presented. 2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD

(a) Total margin represents total revenues less cost of sales - propane and cost of sales - other. (b) EBITDA (earnings before interest expense, income taxes, and depreciation and amortization) should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America. Management believes EBITDA is a meaningful non-GAAP financial measure used by investors to compare the Partnership's operating performance with that of other companies within the propane industry. The Partnership's definition of EBITDA may be different from that used by other companies. Weather significantly impacts demand for propane and profitability because many customers use propane for heating purposes. Due to the seasonal nature of the Partnership's propane business, EBITDA for interim periods is not necessarily indicative of amounts to be expected for a full year. - 20 - AMERIGAS PARTNERS, L.P. The following table includes reconciliations of net loss to EBITDA for the periods presented:

(c) Deviation from average heating degree days based upon national weather statistics provided by the National Oceanic and Atmospheric Administration ("NOAA") for 335 airports in the United States, excluding Alaska. Weather based upon heating degree days was 8.0% warmer than normal during the 2004 three-month period compared to weather that was essentially normal in the prior year three-month period. Notwithstanding the beneficial effects of acquisitions, retail propane volumes sold decreased 7.2 million gallons in the 2004 three-month period due primarily to the warmer than normal weather and price related conservation. Low margin wholesale volumes increased 33.3 million gallons primarily reflecting the effects of product cost hedging activities. Retail propane revenues increased $3.7 million reflecting a $13.3 million increase due to higher average selling prices partially offset by a $9.6 million decrease due to the lower retail volumes sold. Wholesale propane revenues increased $21.1 million principally reflecting the higher volumes sold due to product cost hedging activities. Selling prices in the 2004 three-month period were higher than in the prior-year three-month period as the industry continues to experience unusually high propane product costs resulting from, among other things, higher crude oil and natural gas prices. Total cost of sales increased $26.1 million primarily reflecting the previously mentioned increase in wholesale volumes sold and higher propane product costs. Total margin increased $1.9 million principally due to higher average retail propane unit margins partially offset by the lower retail volumes sold. EBITDA increased $3.5 million in the 2004 three-month period reflecting (1) the previously mentioned increase in total margin, (2) a $1.0 million decrease in operating and administrative expenses and (3) a $0.6 million increase in other income. The decrease in operating and administrative expenses was due to the absence of $3.0 million of expenses associated with initiating the management realignment in June 2003, the continued beneficial effects on operating expenses of the realignment and lower incentive compensation expenses. These decreases were partially offset by incremental operating and administrative expenses associated with the Horizon Propane and Active Propane acquisitions. Operating loss in the 2004 three-month period improved less than the increase in EBITDA due to higher depreciation and amortization expense related to recent acquisitions and higher depreciation associated with PPX(R). - 21 - AMERIGAS PARTNERS, L.P. 2004 NINE-MONTH PERIOD COMPARED WITH 2003 NINE-MONTH PERIOD

(a) The following table includes reconciliations of net income to EBITDA for the periods presented:

Based upon heating degree day data, temperatures in the 2004 nine-month period were 4.6% warmer than normal compared to temperatures that were 0.9% colder than normal in the prior-year nine-month period. Notwithstanding volume growth from acquisitions, retail propane volumes sold decreased slightly in the 2004 nine-month period due principally to the effects of the warmer weather in the 2004 nine-month period. Low margin wholesale volumes increased 11.6 million gallons primarily reflecting the effects of product cost hedging activities. Retail propane revenues increased $71.6 million as a $92.6 million increase due to higher average selling prices was partially offset by a $21.0 million decrease due to the lower retail volumes sold. Wholesale propane revenues increased $24.9 million due to a $17.9 million increase due to higher average selling prices and a $7.0 million increase due to the higher volumes sold relating to product cost hedging activities. Retail and wholesale selling prices were higher during the 2004 nine-month period principally as a result of the continued high propane product costs within the industry. Although total propane volumes decreased slightly, total cost of sales increased $81.7 million reflecting the effects of higher propane product costs, the - 22 - AMERIGAS PARTNERS, L.P. previously mentioned increase in wholesale volumes sold and, to a lesser extent, greater costs associated with increased non-propane sales and services. Total margin increased $23.6 million as a result of (1) recent acquisitions and higher average retail propane unit margins on reduced gallons sold and (2) a $4.3 million increase in margin from non-propane sales and services. Notwithstanding the previously mentioned increase in propane product costs, retail and wholesale propane unit margins were higher than in the 2003 nine-month period reflecting the effects of higher average selling prices. EBITDA increased $23.5 million in the 2004 nine-month period reflecting (1) the previously mentioned increase in total margin, (2) a $4.4 million increase in other income, and (3) the absence of a $3.0 million loss on extinguishment of long-term debt in the prior year nine-month period. These increases were partially offset by a $7.3 million increase in operating and administrative expenses principally due to higher compensation and distribution expenses resulting from the impact of Horizon Propane and other recent acquisitions, partially offset by the absence of $3.0 million of expenses associated with initiating the management realignment in June 2003 and the continued beneficial effects on operating expenses of the realignment. Other income in the 2004 nine-month period includes greater income from finance charges and higher earnings from our equity investment in Atlantic Energy, while other income in the prior year nine-month period was reduced by a $1.0 million charge associated with the adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations." Operating income in the 2004 nine-month period increased less than the increase in EBITDA due to higher depreciation and amortization expense related to recent acquisitions, higher depreciation associated with PPX(R) and the absence of the aforementioned loss on extinguishment of long-term debt. Net income in the 2004 nine-month period increased to $124.7 million from $103.4 million in the 2003 nine-month period due to (1) the increase in operating income, (2) a $3.2 million decrease in interest expense, and (3) the absence of the aforementioned $3.0 million loss on extinguishment of long-term debt in the 2003 nine-month period. Interest expense decreased principally as a result of lower long-term debt outstanding. FINANCIAL CONDITION AND LIQUIDITY FINANCIAL CONDITION The Partnership's long-term debt outstanding at June 30, 2004 totaled $901.6 million (including current maturities of $59.5 million) compared to $927.3 million (including current maturities of $58.7 million) at September 30, 2003. In April 2004, AmeriGas OLP repaid $53.8 million of maturing First Mortgage Notes. In conjunction with this repayment, in April 2004, AmeriGas Partners issued $28 million face amount of 8.875% Senior Notes due 2011 at an effective rate of 7.18%, and contributed the net proceeds of $30.1 million to AmeriGas OLP. AmeriGas OLP's Credit Agreement expires on October 15, 2006 and consists of (1) a $100 million Revolving Credit Facility and (2) a $75 million Acquisition Facility. The Revolving Credit Facility may be used for working capital and general purposes of AmeriGas OLP. The Acquisition Facility provides AmeriGas OLP with the ability to borrow up to $75 million to finance the purchase of propane businesses or propane business assets or, to the extent it is not so - 23 - AMERIGAS PARTNERS, L.P. used, for working capital and general purposes. There were no borrowings outstanding under the Revolving Credit Facility at June 30, 2004. AmeriGas OLP's short-term borrowing needs are seasonal and are typically greatest during the fall and winter heating season months due to the need to fund higher levels of working capital. Issued and outstanding letters of credit under the Revolving Credit Facility, which reduce the amount of available borrowing capacity, totaled $42.8 million at June 30, 2004. AmeriGas OLP also has a credit agreement with the General Partner to borrow up to $20 million on an unsecured, subordinated basis, for working capital and general purposes. UGI has agreed to contribute up to $20 million to the General Partner to fund such borrowings. AmeriGas Partners periodically issues debt and equity securities and expects to continue to do so. It has issued debt securities and common units in underwritten public offerings in each of the last three fiscal years. Most recently, it has issued debt securities in April 2004 and issued common units in an underwritten public offering in May 2004. The Partnership has effective debt and equity shelf registration statements with the SEC under which it may issue up to an additional (1) 1.4 million AmeriGas Partners Common Units and (2) up to $446.2 million of debt or equity securities pursuant to an unallocated shelf registration statement. During the nine months ended June 30, 2004, the Partnership declared and paid the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner units for the quarters ended September 30, 2003, December 31, 2003 and March 31, 2004. The MQD for the quarter ended June 30, 2004 will be paid on August 18, 2004 to holders of record on August 10, 2004. The ability of the Partnership to declare and pay the MQD on its Common Units in the future depends upon a number of factors. These factors include (1) the level of Partnership earnings; (2) the cash needs of the Partnership's operations (including cash needed for maintaining and increasing operating capacity); (3) changes in operating working capital; and (4) the Partnership's ability to borrow under its Credit Agreement, to refinance maturing debt, and to increase its long-term debt. Some of these factors are affected by conditions beyond our control including weather, competition in markets we serve and the cost of propane. CASH FLOWS OPERATING ACTIVITIES. The Partnership had cash and cash equivalents totaling $23.3 million at June 30, 2004 compared to $45.9 million at September 30, 2003. Due to the seasonal nature of the propane business, cash flows from operating activities are generally strongest during the second and third fiscal quarters when customers pay for propane purchased during the heating season months. Conversely, operating cash flows are generally at their lowest levels during the first and fourth fiscal quarters when the Partnership's investment in working capital, principally accounts receivable and inventories, is generally greatest. Accordingly, cash flows from operating activities during the nine months ended June 30, 2004 are not necessarily indicative of cash flows to be expected for a full year. The Partnership uses its Credit Agreement to satisfy its seasonal cash flow needs. Cash flow provided by operating activities increased to $109.0 million during the 2004 nine-month period from $87.2 million in the prior-year nine-month period due to improved operating results. Cash flow from operating activities before changes in working capital was $191.7 million in the 2004 nine-month period compared to $169.2 million in the prior-year nine-month period. Cash required to fund changes in operating working capital during - 24 - AMERIGAS PARTNERS, L.P. the 2004 nine-month period totaled $82.7 million, comparable to the $82.0 million required in the prior-year nine-month period. INVESTING ACTIVITIES. We spent $44.6 million for property, plant and equipment (including maintenance capital expenditures of $15.1 million and growth capital expenditures of $29.5 million) during the nine months ended June 30, 2004 compared to $43.4 million (including maintenance capital expenditures of $16.2 million and growth capital expenditures of $27.2 million) during the prior-year nine-month period. The slight increase is due to greater expenditures relating to growth initiatives partially offset by lower PPX(R) capital expenditures associated with purchases of overfill protection devices ("OPDs"). The increase in proceeds received from disposals of assets reflects the sale of three district locations during the 2004 nine-month period. During the nine months ended June 30, 2004, the Partnership acquired Horizon Propane and several smaller propane distribution businesses for $33.4 million. FINANCING ACTIVITIES. Cash flow used by financing activities was $61.5 million in the 2004 nine-month period compared to $36.2 million in the prior-year period. Financing activity is primarily the result of repayments and issuances of long-term debt, borrowings under our Credit Agreement, issuances of Common Units and distributions on limited partner units. In April 2004, AmeriGas OLP repaid $53.8 million face amount of maturing First Mortgage Notes. In conjunction with this repayment, AmeriGas Partners issued $28 million face amount of 8.875% Senior Notes due 2011 at an effective rate of 7.18%, and contributed the net proceeds of $30.1 million to AmeriGas OLP. In May 2004, AmeriGas Partners sold 2,000,000 Common Units in an underwritten public offering. In June 2004, the underwriters partially exercised their overallotment option in the amount of 100,000 Common Units. The net proceeds of the public offering and the related capital contribution from the General Partner were contributed to AmeriGas OLP and used to reduce indebtedness under its Credit Agreement and for general partnership purposes. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the Financial Accounting Standards Board ("FASB") revised Financial Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which was originally issued in January 2003 and clarifies Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was effective immediately for variable interest entities created or obtained after January 31, 2003. For variable interest entities created or acquired before February 1, 2003, FIN 46 was effective beginning with our interim period ended March 31, 2004. If certain conditions are met, FIN 46 requires the primary beneficiary to consolidate certain variable interest entities. The Partnership has not created or obtained any variable interest entities prior to, or after January 31, 2003. Therefore, the adoption of FIN 46 did not affect the Partnership's financial position or results of operations. Effective April 2004, the Partnership adopted Emerging Issues Task Force Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128" ("EITF 03-6"), which results in the calculation of net income per limited partner unit for each period according to distributions declared and participation rights in undistributed earnings, as if all of the earnings for the period had been distributed. In periods with undistributed earnings above - 25 - AMERIGAS PARTNERS, L.P. certain levels, the calculation according to the two-class method results in an increased allocation of undistributed earnings to the general partner and a dilution of the earnings to the limited partners. Due to the seasonality of the propane business, the dilutive effect of EITF 03-6 on net income per limited partner unit will typically impact the first three fiscal quarters. EITF 03-6 is not expected to impact net income per limited partner unit for the fiscal year. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our primary financial market risks include commodity prices for propane and interest rates on borrowings. The risk associated with fluctuations in the prices the Partnership pays for propane is principally a result of market forces reflecting changes in supply and demand for propane and other energy commodities. The Partnership's profitability is sensitive to changes in propane supply costs, and the Partnership generally attempts to pass on increases in such costs to customers. The Partnership may not, however, always be able to pass through product cost increases fully, particularly when product costs rise rapidly. In order to reduce volatility of the Partnership's propane market price risk, we use contracts for the forward purchase or sale of propane, propane fixed-price supply agreements, and over-the-counter derivative commodity instruments including price swap and option contracts. Over-the-counter derivative commodity instruments utilized by the Partnership are generally settled at expiration of the contract. In order to minimize credit risk associated with derivative commodity contracts, we monitor established credit limits with the contract counterparties. Although we use derivative financial and commodity instruments to reduce market price risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. The Partnership has both fixed-rate and variable-rate debt. Changes in interest rates impact the cash flows of variable-rate debt but generally do not impact its fair value. Conversely, changes in interest rates impact the fair value of fixed-rate debt but do not impact its cash flows. Our variable rate debt includes borrowings under AmeriGas OLP's Credit Agreement. This agreement has interest rates that are generally indexed to short-term market interest rates. Our long-term debt is typically issued at fixed rates of interest based upon market rates for debt having similar terms and credit ratings. As these long-term debt issues mature, we may refinance such debt with new debt having interest rates reflecting then-current market conditions. This debt may have an interest rate that is more or less than the refinanced debt. In order to reduce interest rate risk associated with near-term forecasted issuances of fixed-rate debt, from time to time we enter into interest rate protection agreements. - 26 - AMERIGAS PARTNERS, L.P. The following table summarizes the fair values of unsettled market risk sensitive derivative instruments held at June 30, 2004. Fair values reflect the estimated amounts that we would receive or pay to terminate the contracts at the reporting date based upon quoted market prices of comparable contracts at June 30, 2004. The table also includes the changes in fair value that would result if there were an adverse change of ten percent in (1) the market price of propane and (2) interest rates on ten-year U.S. treasury notes:

Because the Partnership's derivative instruments generally qualify as hedges under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," we expect that changes in the fair value of derivative instruments used to manage propane price or interest rate risk would be substantially offset by gains or losses on the associated underlying transactions. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Partnership's management, with the participation of the Partnership's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Partnership's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Partnership's disclosure controls and procedures as of the end of the period covered by this report were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by the Partnership in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Partnership believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Change in Internal Control over Financial Reporting No change in the Partnership's internal control over financial reporting occurred during the Partnership's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting. - 27 - AMERIGAS PARTNERS, L.P. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 10.1 AmeriGas Propane, Inc. Executive Employee Severance Pay Plan, as amended December 15, 2003. 10.2 AmeriGas Propane, Inc. 2000 Long-Term Incentive Plan on Behalf of AmeriGas Partners, L.P., as amended December 15, 2003. 10.3 UGI Corporation 2004 Omnibus Equity Compensation Plan, effective as of January 1, 2004. (Incorporated by reference to Exhibit 99.1 of UGI Corporation's Registration Statement No. 333-118147). 10.4 UGI Corporation 2000 Stock Incentive Plan Amended and Restated as of December 16, 2003. (Incorporated by reference to Exhibit 10.2 of UGI Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 2004). 31.1 Certification by the Chief Executive Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32 Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ---------------------- * This Exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing. - 28 - AMERIGAS PARTNERS, L.P. (b) The Registrant furnished and filed information in a Current Report on Form 8-K during the third quarter of fiscal year 2004 as follows:

- 29 - AMERIGAS PARTNERS, L.P. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. AmeriGas Partners, L.P. ------------------------- (Registrant) By: AmeriGas Propane, Inc., as General Partner Date: August 13, 2004 By: /s/ Martha B. Lindsay ----------------------- Martha B. Lindsay Vice President - Finance and Chief Financial Officer By: /s/ Richard R. Eynon ----------------------- Richard R. Eynon Controller and Chief Accounting Officer AmeriGas Finance Corp. -------------------------- (Registrant) Date: August 13, 2004 By: /s/ Martha B. Lindsay ----------------------- Martha B. Lindsay Vice President - Finance and Chief Financial Officer By: /s/ Richard R. Eynon ------------------------------- Richard R. Eynon Controller and Chief Accounting Officer AmeriGas Eagle Finance Corp. ----------------------------- (Registrant) Date: August 13, 2004 By: /s/ Martha B. Lindsay ------------------------------- Martha B. Lindsay Vice President - Finance and Chief Financial Officer By: /s/ Richard R. Eynon ---------------------------------- Richard R. Eynon Controller and Chief Accounting Officer - 30 - AMERIGAS PARTNERS, L.P. AP Eagle Finance Corp. ---------------------------------- (Registrant) Date: August 13, 2004 By: /s/ Martha B. Lindsay ------------------------------- Martha B. Lindsay Vice President - Finance and Chief Financial Officer By: /s/ Richard R. Eynon ---------------------------- Richard R. Eynon Controller and Chief Accounting Officer - 31 - AMERIGAS PARTNERS, L.P. EXHIBIT INDEX 10.1 AmeriGas Propane, Inc. Executive Employee Severance Pay Plan, as amended December 15, 2003. 10.2 AmeriGas Propane, Inc. 2000 Long-Term Incentive Plan on Behalf of AmeriGas Partners, L.P., as amended December 15, 2003. 10.3 UGI Corporation 2004 Omnibus Equity Compensation Plan, effective as of January 1, 2004. (Incorporated by reference to Exhibit 99.1 of UGI Corporation's Registration Statement No. 333-118147). 10.4 UGI Corporation 2000 Stock Incentive Plan Amended and Restated as of December 16, 2003. (Incorporated by reference to Exhibit 10.2 of UGI Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 2004). 31.1 Certification by the Chief Executive Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32 Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ------------------ * This Exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

AP EAGLE FINANCE CORP 10-Q